Happy Holidays
Well, we can officially say Happy Holidays to you as we near the end of November and shift toward the final weeks of the year. Making the season happy for many investors is that most asset classes have shown impressive results to this point – the S&P 500 is up more than 27% and the US Barclays Aggregate index is up nearly 9% on the year. These large relative returns give me pause for a few thoughts:
- Let’s celebrate the positive returns this year! It’s my view that in the short-term, the market is nearly impossible to predict, and so when we do get these positive, outsized returns, we should reflect and be grateful that we had the courage not just to invest in the first place, but to stay invested.
- Let’s also remember that while the markets generally tend to trend upward over the long-run, there will be periods ahead in which the markets will fall, and our investment accounts will decrease in value. With this outlook, investors should be proactive and ensure they are not putting short-term dollars to work in the market.
- It is my opinion that over the past year, nothing material has changed in the economic or political spheres that could potentially explain the large returns being experienced. There are two ways to look at this: the first is to say that, since there’s no obvious explanation, the returns are not warranted. The second (the view I choose to take) is that the markets often behave irrationally, and that over the course of history, there are countless instances of markets acting independently of the general economic or political environment.
- When investors think about “average” market returns, they’re generally thinking of a figure in the 8%-10% range…and history tells us that, over a very long period of time, that has been a reasonable estimate. The issue is that the market very seldom returns within this range in a typical individual year. Data from Dimensional Fund Advisors reports that between 1926 and 2018, there have only been about 10 years when the S&P 500 actually returned between 6% and 10% in a single calendar year. This helps drive the point that to have realized these “average” returns, investors typically needed to be invested for the longer term.
- The lesson to be learned here is that markets will do what markets do – and we should adjust our course based on the objectives we’re trying to achieve, the tolerance we have for volatility and short-term setbacks, while always being prepared for the unexpected (e.g., have adequate cash on the sidelines)
Election Looming
Recent headlines are also full with news of the upcoming 2020 election. In my experience, elections – particularly 2016 and the upcoming 2020 election – often create a great deal of confusion and anxiety for investors. Our research tells us that while there are some trends in market returns in pre-election and election years, they aren’t strong enough to rely upon. Boring but prudent, we believe the best approach is to prepare for all scenarios in lieu of the ability to accurately predict which candidate will prevail.
Year-End Planning
December will be here in a few days and this is a great opportunity to relax with family. It’s also a terrific chance to think about your charitable giving strategies. If you’re over 70 ½ and taking Required Minimum Distributions, you should consider if Qualified Charitable Contributions are wise strategies for your situation. For those of you seeking potential deductions on your income taxes, you may want to explore Donor Advised Funds. And lastly, investors would be wise to check with their tax advisor and determine if they could benefit from tax loss harvesting within their taxable accounts.
Next week I’ll be headed to Chicago for an investment forum where I’m looking forward to informative conversations on the markets, economy, and financial planning strategies.
Before I close this out, I’d like to give thanks to my Clients for their trust, confidence, and friendship. The number of referrals we’ve received over the past year tells us that we are adding great value while delivering service in a manner they enjoy. I’m also appreciative of Michelle in the office who is reliable, professional, dependable, and extremely competent. And personally, I’m thankful for the opportunity to be in this profession, live where I live in Southern California, and have the family and friends that I do.
Wishing you and yours a very Happy Holiday Season!
Jeff
Disclosures:
The opinions expressed above are those of Jeff DeLarme and are subject to change. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past Performance is no guarantee of future results. This wealth briefing has been written for educational purposes and is not a solicitation to invest or buy securities and does not constitute investment advice. Any data included or referenced has been sourced from what are believed to be reliable sources, but should not be relied upon. There is no assurance any of the trends mentioned will continue or forecasts will occur. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. It is not possible to invest directly in an index. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.